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Analysis and Prediction:

Date of publication: October 16, 2017 | Author: Tim Clayton

Last Week’s Summary

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The main US data releases were concentrated on Friday with both the retail sales and CPI data.

Headline retail sales rose 1.6% for September which was fractionally below expectations while the underlying gain of 1.0% was marginally above consensus forecasts of 0.9%.

Consumer prices rose 0.5% on the month which was slightly below consensus expectations while the core increase was held at 0.1% for the month which maintained the annual rate at 1.7%.

The dollar weakened sharply after the data with significant losses across all major pairs

Why did the dollar weaken?

Although the headline data releases were strong with 1.6% for retail sales and 0.5% for consumer prices, both were slightly weaker than consensus forecasts.  Markets gauge their immediate reaction on the data outcomes relative to forecasts – not the actual data.

The US currency, therefore, weakened after the data especially as the underlying data was weaker than expected.

Elsewhere, there was a strong reading for consumer confidence which had little impact.

The dollar was unsettled by further uncertainty surrounding the appointment of Federal Reserve chair while there was no significant headway on tax reform which limited US support and the dollar index lost ground on the week.


Sterling was subjected to volatile trading during the week with price action driven mainly by political considerations following the latest round of Brexit talks between the EU and UK in Brussels.

In the press conference, EU chief negotiator Barnier stated that there had been no agreement on a financial settlement and that the talks were deadlocked. This pessimistic take pushed Sterling sharply lower with EUR/GBP peaking at 4-week highs near 0.9030.

There was a sharp turnaround later in the day with reports that the UK would be offered a 2-year transition deal with single-market access.

There was also greater optimism that progress surrounding Brexit talks would be made before year-end and reports that negotiations surrounding a trade deal were starting within the EU 27 countries.

Overall, Sterling rebounded strongly with EUR/GBP sliding below 0.8900 despite further speculation surrounding the UK Chancellor’s future.

The UK data impact was mixed with a stronger than expected industrial production report offset by a record trade deficit.


Reports from ECB sources suggested that the amount of bond purchases would be cut to EUR30bn per month from EUR60bn at the start of 2018 with the extension likely to continue until September 2018. Bank President Draghi reiterated that extremely low interest rates would continue well beyond the time when bond purchases stop.

Overall, EUR/USD moved higher during the week as the US currency drifted weaker and settled just above 1.1800.


There was further debate surrounding the futures of NAFTA with the US again threatening to pull out of the trade bloc, although there was no major negative impact on the Canadian dollar.

There was uncertainty surrounding the October 22nd Japanese General Election while the yen overall was resilient during the week.

Next Week’s Forecast & Events

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The US housing release is due on Wednesday, although the overall impact is likely to be limited. The New York Empire manufacturing index on Monday and Philly Fed index on Thursday are important indicators of underlying conditions.

Current Fed Chair Yellen is due to make a speech on Saturday and other key Fed officials will make comments during the week.

The main US focus will be developments surrounding tax reform and the next Fed Chair.  Interviews for the post have continued over the past week and an announcement is possible by President Trump during the week ahead.

An appointment which is seen as dovish would tend to undermine the dollar while a more hawkish appointment would underpin the US currency. The two main candidates are seen as Warsh who is considered hawkish while Powell would be more neutral.

There is liable to be volatile trading during the week and current exchange rates can be checked here


There are important UK data releases during the week which will also have an important impact on interest rate expectations ahead of the crucial policy meeting at the beginning of November.

The latest inflation data is due on Tuesday with expectations that the headline CPI inflation rate will increase to 3.0% from 2.9%. A stronger than expected rate would increase pressure for the Bank of England to raise interest rates while a weaker release would calm speculation.

The labour-market data is due on Wednesday and evidence of stronger growth in earnings would also increase pressure for higher interest rates. The latest retail sales data is also due on Thursday.  

Will the Bank of England raise interest rates in November?

A formal decision has yet to be taken, but the overall tone of comments from bank officials suggests that they are preparing to raise rates at the November meeting, especially given recent inflation data, especially given the recent upward revision to wage costs.

If there is stronger than expected inflation and earnings data this week, a rate hike will be assured.

Political developments will also remain a very important focus during the week with further important rhetoric surrounding Brexit with the European Council meeting taking place in Brussels on Thursday and Friday.


Euro-zone developments are liable to be dominated by ECB speculation ahead of the late-October Council meeting when the bank will make a decision on bond purchases for 2018.


The Japanese Lower House election will be a significant focus during the week ahead of the October 22nd vote.  

The latest Canadian inflation and retail sales data will be released on Friday ahead of the crucial monetary policy decision due the following week.

Currency Forecast for Next Week

Currency pairSpot 1-week forecast1-month forecast


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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